Wednesday, April 4, 2012

Beating random walk... occasionally

Chart: Beating random walk

Based on the 75% rule, you can beat the random walk. At least occasionally :)

The chart above presents daily logarithmic changes of the Brent crude oil as well as the cumulative log returns of the asset (red) and a modified investment strategy based on the 75% rule (black).

While the cumulative return of the asset was some 351% over the analyzed 7310 sessions, the strategy would return 377%.

Unfortunately the proposed strategy does not beat the market every time nor in case of all assets.

Nevertheless, this approach can most probably extend an experimental trading strategy MD2 mentioned quite a while ago...

[R source]

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